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President Barack Obama, Larry Summers, and the rest of the White House economic team think a second stimulus package is needed if the recovery is to be sustainable and job creation is to perk up. They point out that debt-ridden consumers, aware that their various benefits, especially state pensions, might well be reduced or even disappear, are self-insuring by saving more -- something they are in any event prone to do given the uncertainty of their employment tenure and the decline in the value of their homes.

So, damn the deficit, full speed ahead – a position supported by the left wing of the president’s party, undaunted by the fact that despite the $862 billion first stimulus, unemployment hovers near double digits, more and more “discouraged workers” have given up the job hunt, and increasing numbers are out of work for longer periods than was typical of past recessions.

More conservative economists are calling for deficit reduction to shore up the confidence of businessmen who are sitting on something like $2 trillion in cash, their animal spirits dampened by their inability to guess just what this anti-business president has in store for them. The president’s political advisers, White House chief of staff Rahm Emanuel, and senior adviser David Axelrod, are siding with the deficit hawks against the president’s economists, although not because they worry very much about the attitudes of businessmen and entrepreneurs. As they read the political runes, voters are more than a little upset about the mounting deficit, and are prepared to turn out Democrats in marginal constituencies if they support more deficit spending.

More by Irwin M. Stelzer

That this battle is being billed in the press as John Maynard Keynes vs. Friedrich von Hayek tells us something about the relevance of the argument to today’s circumstances. Those wondrously gifted economists fought this fight in the 1930s, with each decade pronouncing a different winner, as economic fashion ebbs and flows. It is certainly true that now, as in the 30s, we are trying to figure out how to get the economy growing again and, most important, how to create what politicians like to call “good, high-paying, American jobs.”

The Keynesians are right to worry about cutting government spending at the same time as consumers are holding back, but the conservatives also have reason to argue that businesses would be encouraged to invest if deficits were reduced to keep future tax increases at a minimum, and the president would abandon plans to follow rising health care costs with higher energy costs.

Does all of this matter to the future course of the American economy? Is it indeed true, as both parties contend, that if we can increase real GDP by, say, between 2 and 3 percent, the unemployment rate will drop by 1 percentage point (a historical relationship that has come to be known as Okun’s Law, after its originator, Yale economist Arthur Okun)?

We can’t ignore the possibility that the economy has changed since the battle lines were drawn between the advocates of more borrowing and the advocates of immediate austerity. So much so that the long-run performance of the American economy will depend on policies far different from those devised to cope with the business cycle. We are facing structural problems that just might, only might I must emphasize, have weakened the relationship between economic growth and job creation, and forced a repeal or at least a revision of Okun’s Law.

Consider only the on-going substantial deficit in America’s trade balance. No one can deny that a large portion of any stimulus spending will leak out in the form of increased spending on imports, creating jobs, but not in the U.S. Yes, the administration and some states have put a finger in the hole by inserting “buy American” provisions in some of the relevant statutes. In the end, they won’t work. Subsidize the pay checks of state workers who might otherwise be laid off, and they will trek to Wal-Mart to stock up on low-priced made-in-China trainers for the kids. Subsidize renewable energy and China, and various European suppliers will manufacture the hardware. In short, import leakage dilutes the impact of Keynesian spending on job creation in the U.S. In a world of manipulated exchange rates and non-tariff barriers to American goods, it is no good to pretend that the long-run benefits of trade will offset these nearer-term negative impacts.